General stock market action was punctuated the end of the week by a pin that let the air out of almost everything except our hedging investments which went the other way. So let's take a look at currency trends today.
Making choices in currencies is not a tricky thing to do. You can invest in ETF's for specific currencies (several charts of which are included here) or you can purchase FDIC insured CD in select foreign currencies through various brokers and institutions (I use Everbank to purchase CD's and buy the ETF's via my broker).
The old, tired (and increasingly worthless) dollar has been in a down trend since last June. The bar for the 2nd week of August is very broad from high to low and that can be explained by looking at the Daily Chart which, when the stock market tripped, went up, giving us a valid BUY for the dollar for the first time since early June.
From the looks of things, I'd say that in the short term, we're going to get a dollar rally but get it in the atmosphere of a weaker dollar longer term. How long before the DXY Weekly chart rolls over is anyone's guess - and I certainly won't make one. The point is that right this minute might not be the best time to trade out of the dollar as far as expecting appreciation is concerned. I'd wait a few days to weeks to see if we do get that rally. You can be sure it will not last, but it's always better to make your trade in sync with the markets going the way you want them to or when the dollar once again gives a Sell.
If your taste is for holding funds in other currencies (which I solidly recommend), if you want some decent yields, Australia, Brazil and for appreciation, Canada are the places to look. The South African Rand is paying the best interest rates at the moment, but I have never placed a nickel into Africa and will not start now. It's just too unstable for me.
Australia and Brazil are different creatures, however.
Brazilian currency in the form of a certificate of deposit is currently paying 6% as of Friday on a 90 day CD. The Brazilian Real would have to drop to 25.709 for you to loose money and that's a big move in three months.
Likewise the Aussie dollar which closed at 89.73 Friday and pays 3% on a 90 day CD would have to drop to 87 before you'd loose capital. The South African Rand is paying 4.25% but is not as favorable or stable as the others.
The Canadian buck is paying in CD form about as much as the U.S. dollar(.1%) however it has been appreciating against the dollar since February '09 and is currently walking up a trend line. When this happens, buys and sells from the MRO are labeled "strength" and "weakness" respectively and I exit trade when the trendline is penetrated. "Strength" moves are good places to add to a position if you want more and "weakness" moves are a time to lighten up if you don't feel secure or have too heavy a position in what's you're trading.
Bear in mind that if we do get a short term rally in the dollar, we'll also get a short term fizzle in the foreign currency. That's why I say it might be a good move to be a little patient before moving more of your cash into foreign instruments.
All in all, it's been a shipwreck this week and we are rapidly moving into a period of "interesting times" which can be both dangerous and offer opportunity. I find myself becoming more defensive as time passes, moving slowly out of dollars and into foreign currencies and investments, especially in countries that are resource rich or whose economy is expanding with little debt to hinder it. Brazil, Canada, Australia and India currently fit the bill with India last because of the "too many rats in the box" problem. (Too high a population equals instability).
Have a week and I'll be back..
End
Disclosure: The author has positions in some of the ETF's and CD's mentioned in the article. He has no interest in or connection to Everbank other than using their services at no discount.
Information on the MRO
The MRO (Market Reversal Oscillator) and its associated Trend Trading System was developed and is sold by Mike Endres and the Marker Trend Trader. Please feel free to contact Mike to discuss this article or the MRO Trend Trading System.
